Trenwick America. That is, the defense is based on the

doctrine.

As a judge in Delaware, the federal case law on

does not strike me as reflecting a

nuanced approach to business law. There are certainly situations when an entity could be injured by an insider’s misconduct and when the entity, as to third parties, would be charged with knowledge of that misconduct. Suppose, for example, that a board of directors conspired with the company’s auditors to embezzle $100 million, giving the auditor a 10% cut if it characterized the stolen funds improperly in the company’s financial statements. In that circumstance, the directors’ knowledge of the wrongdoing would not bar a derivative suit against the directors and the auditors on behalf of the company, even though a third party relying reasonably on the company’s false financial statements might have a basis to sue the company and charge it with its insiders’ knowledge. Many of the great corporate scandals have involved concerted activity b y c o m p a n y a d v i s o r s a n d i n s i d e r s , a c t i v i t y t h a t s o m e t i m e s h a r m e d n o t o n l y o u t s i d e r s b u t a l s o derivatively, the company’s innocent stockholders. The doctrine of , has never

operated in Delaware as a bar to providing relief to the innocent by way of a derivative suit.

, 56 F.3d 750 (7th Cir. 1995) (explaining that the defense of functions to prevent a wrongdoer from profiting from the recovery awarded by a court for the wrong but that when the wrongdoer will not be able to share in the corporation’s recovery the